China to lend $450bn to domestic rural businesses

The move is the latest of Beijing's attempts to reform domestic agribusiness credit systems and shore up food security.

China’s Agricultural Development Bank is to plough at least $450 billion into loans designed to speed up Chinese agricultural development and encourage private agribusiness.

The package will provide agribusinesses with technical assistance, including linking companies to build business ties and efficiencies along the supply chain. It is also part of a government programme to reduce rural poverty and encourage private investment in agriculture, according to a bank press release.

The debt package has come out of an agreement with China’s Ministry of Agriculture to shore up food security and increase the rate at which loans are issued to the rural sector. Beijing hopes that by enforcing higher rates of lending agricultural production systems will be reformed through improved farm infrastructure and use of agtech.

China’s investment in the sector has soared in recent years, both at home and abroad. Although it is hard to pin an exact figure on the increase, large state-backed deals that could help China ensure food supply from abroad include Cofco and Hopu Investments’ acquisition of Noble Group’s Noble Agri, and the recent ChemChina offer to buy up Swiss agrochemicals and seeds business Syngenta. China has recently invested in Russian dairy and Kazakh beef production, and signed a deal this month to set up the $1 billion Fund for the Development of Agriculture of Brazil and China, according to Brazilian media. The fund will focus on agricultural infrastructure and logistics, and shore up China’s grain supply.

At home, reform to the agricultural system has also meant improving food and environmental safety, and financial reform. The Asian Development Bank invested $62.5 million in debt capital to Saikexing, China’s fourth-largest dairy, to increase the country’s domestic fresh milk supply this summer. In recent years, Cofco and other major producers have built up livestock production capacity and industrialised supply chains as they moved farms from the east coast inland.

But financial reform has also been difficult to implement in rural sectors. Warburg Pincus Asia-Pacific’s former chairman Chang Sun temporarily postponed plans for a $1 billion China agribusiness fund this year to focus on his agriculture and investment operating company, Black Soil, which he said would be a proof of concept to develop direct investment into Chinese production.

“I researched different industries and found that agriculture in China is the most backward and needs the most help – not just financially but also in terms of management, resources and innovative business models,” Sun told Agri Investor.

So far he has aggregated villager-owned land plots, in order to show China’s complex land system can be tackled by private investors, as well as making use of ready-made larger plots in Heilongjiang, a province where the military formerly developed large-scale farms.

China has also implemented experimental credit and subsidy projects to encourage environmentally-friends practices include crop rotations.